This text appears to be an article discussing recent developments in the world of Ethereum Exchange-Traded Funds (ETFs). The article starts by mentioning that the Securities and Exchange Commission (SEC) has taken a step forward in approving the first stage of an application for an Ethereum ETF, specifically from ProShares.
Expert: Gary Gensler, the Chairman of the U.S. Securities and Exchange Commission (SEC), has indicated that investors could potentially see the launch of spot Ethereum exchange-traded funds (ETFs) as soon as September. Roxanna Islam from VettaFi provides insight into the latest developments regarding these ETFs by analyzing the filings of their prospective issuers, offering an update on the progress made since the approval of spot bitcoin ETFs earlier in the year.
At “Ask an Expert,” Eric Tomaszewski from Verde Capital Management addresses frequently asked queries regarding the accessibility of Ether Exchange-Traded Funds (ETFs) and their significance for investors.
– Sarah Morton
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Decoding S-1s for Spot Ether ETFs
For crypto enthusiasts and investors in ETFs or Ethereum, the anticipated debuts of spot Ether ETFs have fueled further enthusiasm this year, following the launch of spot Bitcoin ETFs. As regulatory approvals inch closer, there’s been much debate surrounding documents such as 19b-4 applications and S-1 filings and their significance. While most of their content adheres to SEC filing protocols, there are valuable insights to be gleaned from the legalese. Here is a summary of what we currently understand about potential spot Ether ETFs based on S-1 submissions and industry data.
What are 19b-4 and S-1 filings?
As a researcher, I’ve been following the developments surrounding the filing of so-called 19b-4 documents by exchanges to propose new rule changes for listing Ethereum Exchange-Traded Funds (ETFs) with the Securities and Exchange Commission (SEC). These filings, which include VanEck, 21Shares, Grayscale, Fidelity, Invesco, iShares, Franklin, Bitwise, and more recently ProShares, were asked to be amended around May 20. Most of these issuers removed provisions for staking during the amendment process.
What do S-1s tell us about spot ether ETFs?
- Potential concentration in custodians. Like spot bitcoin ETFs, the majority of spot ether ETF issuers have chosen Coinbase as their custodian, which could cause concentration issues or a potential conflict of interest among competing products. Only VanEck and Fidelity have chosen custodians outside of Coinbase. (VanEck, however, expects to execute an agreement that would allow Coinbase to become an additional custodian.)
- Creation/redemption baskets vary among issuers. Larger issuers like iShares, Fidelity and VanEck will issue and redeem shares in blocks of 40,000, 25,000 and 25,000 respectively. Many of the other issuers will use baskets of 10,000.
- TBD on the fee war. Fees have so far been left blank (but logically, we could see fees go as low as they did for spot bitcoin ETFs).
- Risk factors look intimidating but should be approached rationally. The longest section in the S-1 is risk factors (50+ pages in some of the filings). But most of these are standard disclosures—risks of volatile markets, risks related to lack of demand, and risks related to new asset classes can be found in most stocks and ETFs.
- Investors need to weigh the pros and cons of ETF investment vs. direct investment. Investors may not receive some of the benefits related to spot ether ETFs. Investors would not have access to staking or to any “forked” or “airdropped” assets.
- Ark drops out of the spot ether race. Despite being a vocal player in the crypto ETF world, Ark pulled its name from its spot ether filing, leaving 21Shares as the sole issuer. Ark released a statement that they will be “evaluating efficient ways to provide [their] investors with exposure to [Ethereum] in a way that unlocks its full benefits.” This might be due to the lack of staking or the fact that fee wars have made spot bitcoin ETFs unprofitable.
- ProShares enters the spot ether race. Surprisingly, ProShares (who became a big name in crypto futures ETFs) did not launch a spot bitcoin ETF but was a late filer in the spot ether race. While traditional financial players like BlackRock and Fidelity may take significant market share again, ProShares may be able to take a chunk of that given its name recognition in the space.
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Bottom Line:
With the knowledge gained from this year’s experience with spot Ethereum ETFs, we have a better understanding of the approval process compared to spot Bitcoin ETFs. As we anticipate potential approval for a spot Ethereum ETF, the way forward for other crypto ETFs, such as Solana, may become clearer.
– Roxanna Islam, Head of Sector and Industry Research, VettaFi
Ask an Expert
Q: What excites you about an Ethereum ETF?
The preliminary green light given to the first Ethereum ETF is a major achievement for the cryptocurrency sector, as it might make investing in Ethereum simpler and more accessible for the general public.
Furthermore, securing final approval could establish a regulatory structure that facilitates institutional investment, valued at over $100 trillion worldwide.
An ETF launch could significantly boost the credibility and mainstream recognition of the digital asset class. Consequently, increased interest and investments are likely to follow. This positive development would strengthen the digital asset industry’s position and pave the way for broader acceptance and integration into diverse investment portfolios.
Q: What are some of the risks with an Ethereum ETF?
A: There is a concern that spot ETF approvals could potentially create massive players who could significantly influence validator power over time. The same applies for counterparty, centralization and concentration risks.
Q: What are some of the risks with Ethereum on-chain?
Expert: When it comes to Ethereum’s on-chain usage across various ecosystems and projects, the risks can be distinguished more distinctly. These risks encompass technological, regulatory, financial, and security challenges. However, it’s important to note that risk levels vary based on individual use cases, and correspondingly, so do potential rewards.
Q: What are some opportunities or reasons someone should consider Ethereum on-chain?
A: On-chain existence brings about endless opportunities for permissionless advancements and equitable access to financial solutions.
As a crypto investor, I can tell you that staking is a way I can contribute to the security and functionality of the Ethereum network while earning rewards for my efforts. This aligns with the principles of the Ethereum project and reflects the shared values of the Ethereum community.
Instead of limiting your support to staking, consider exploring other methods to back projects that extend beyond financial gains. The digital realm thrives on community and culture, aspects often overlooked by an Exchange-Traded Fund (ETF).
– Eric Tomaszewski, Financial Advisor, Verde Capital Management
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2024-06-27 18:14